Many small business owners lose to the ATO and become a casualty of tax court. Deducting thousands of dollars for travel, meals, entertainment, automobile and mobile expenses, but like many small-business owners, they don’t keep the strict substantial requirements of the ATO. While they are able to produce books and records proving the expenses were incurred, they fail to show receipts, notes and documentation that the expenses were business related. In the words of the court, the only evidence they presented to support the business purposes of the expenses were their “own broad self-serving testimony and uncorroborated notes.”
The reality is that you may be entitled to these deductions, but if you don’t follow the rules, you could be left out in the cold.
1. Keep all receipts.
This point cannot be overstated. How many of us often ignore or quickly say “No” when asked whether they want a receipt? Not small-business owners! Is this because they spend hours upon hours organizing them during the year and look forward to turning them into their accountant? Definitely not! Savvy business owners simply know to keep receipts because if they don’t, their tax return could be in peril. The reality being – Receipts are audit protection and we have to take that seriously. Arguing with the ATO can cost you a lot more time and money than just keeping your receipts.
2. Make sure you know your receipts business purpose.
This is an especially great idea for dining and entertainment expenses. It can be easy to remember why you bought a Multifunction office machine), but it could be a lot harder to remember who you went to dinner with at Red Lobster three years ago and what the business purpose was.
3. Scan receipts and keep them at least seven years.
Yes, the ATO can come knocking for documentation and audit you up to seven years back in some cases. However, hoping that the ink on your Home Depot receipt hasn’t faded away is a whole other issue. The ATO allows taxpayers to scan receipts and store them electronically. But keep a back-up, because crying about your hard drive crashing isn’t going to help you any more than “My dog ate my receipts.”
4. Take a picture with your smartphone.
With today’s technology, it’s easy to make a note on the receipt and then take a picture of it. This is a great idea and there are a whole host of apps for the iPhone and Android that can help you better track your expenses.
5. Keep a daily business journal.
Keeping a daily journal for your business may sound ridiculous and more work than you need, as if you’re not already busy enough. However, it can be simply accomplished by keeping a good calendar in your Outlook or Google Calendar. It has been known for an auditor to actually ask for a printout of a clients Outlook calendar to substantiate various deductions being claimed. A very good reason to keep a detailed schedule.
6. Stay away from cash.
Using cash for expenses seems to be a real death trap for any small business trying to keep good bookkeeping records and documentation for an audit. Cash is hard to track, easy to spend and nearly impossible to reconcile with receipts. Stick to debit and credit cards to better track your expenses and then combine them with receipts.
It is no secret that audits will continue to increase and the rules will be only more strictly enforced. The best course of action for small-business owners is to be prepared with a better set of books and receipts for all of their expenses, staying one step ahead of the “tax man.”
If you have been affected by the fire disasters in Tasmania, Victoria or Perth, or more recently the devastating flood disaster in Qld or NSW – either as an individual, a business or as part of a wider community – you may need help reconstructing your records, getting deferrals, accessing your money or making or receiving payments and donations. Click on the link below for more information about what you need to know.
You can claim undocumented expenses up to $300. Once that limit is reached you need to show proof. It is advisable to keep these receipts, since the Australian Tax Office can request to see them, should they choose to check up on you.
The ATO also provide free, detailed guides explaining what you can claim and what not. Visit the taxation website to view these guides now.
The ATO are committed to administering the tax and superannuation system in a way that makes it as easy as possible for taxpayers to comply. Most people want to do the right thing so they’re always looking for helpful ways to improve how you engage with them, to make it easier and cheaper for you.
Making it easier to comply describes their current and future priorities in delivering better services to you. Their research tells us that their relationship with the community is improving over time, but they also know there are a few areas where their report card says we ‘could do better’. They’re working on those within the parameters of our budget.
Previously, they have published Making it easier to comply as a printed booklet. This year, embracing a faster and more cost-effective online option, they’ve uploaded their ‘report card’ directly to their website –www.ato.gov.au. This will enable them to make regular updates and keep you better informed.
“We are committed to being flexible, responding to changing priorities and improving our services. To achieve this we look for ways to make it easier, cheaper and more personalized for the community to interact with us. By this we mean:
In these pages we outline major initiatives we are introducing to make it easier for people to comply with their obligations. Our Compliance Program outlines the wider range of services we provide to help people comply with their obligations and receive their entitlements.
We use a set of principles to guide the design of these improvements and to ensure that we understand and meet your needs. We will also continue to consult, collaborate and co – design. With the community to guide our future priorities and improve community interactions with us.
Our current priorities are to:
We’ve learned some important lessons from our experiences so far and we know we have to continuously take new legislative requirements, government initiatives and community expectations into account when we plan for the future. We also look at how people use our products and services and how satisfied they are with them to see whether we’re delivering what they want and what improvements we can make.
Our focus is on continual improvement. The initiatives we implement, through until 2010, under our change program will be a big part of delivering improvements to the way the community interacts with us. Our community experience tables provide detailed information about the specific initiatives we’re working on.”
Find out how to disagree with ATO decisions, fix mistakes they have made, fix mistakes you have made, tell them about previously undisclosed income, incorrectly claimed deductions or misleading statements you have made and ask for penalties or interest charges to be reduced or cancelled by clicking the link below.
Subject to consulting a Tax Return Consultant, you can. From $2 you can claim a deduction equal to your contribution, up to $10 in your tax return. You won’t need proof of a receipt for this either. The same goes for donations made via banks.
Shand Business Solutions are registered BAS AGENTS.
We do not provide Accounting, Financial or TAX advice.
We do provide when requested, Accountant Ready Books for your own Accountant or Tax Agent.
If you don't have an accountant or a Tax Agent then we can arrange one for you.